As we approach retirement, we face a difficult choice about the assets in our superannuation funds and investment portfolios. We are told - most recently by a former head of Treasury, Ken Henry - that we should be reducing our exposure to high-risk assets, such as shares, because if we lose capital once we have stopped working, we will not have the income to replace it. On the other hand, we are told we should continue to hold high-risk growth assets in our superannuation pension accounts because we are likely to live for 20 years or so in retirement and we need growth in our portfolios to replenish the capital as we draw down income.

One option that is relatively new to the Australian investment market is wealth insurance. Life insurance and superannuation company AXA offered the first wealth-insurance product in Australia in 2007. That product, North, is now part of AMP's product range and has $3.8 billion in funds.

Since then, Macquarie Group has launched a similar product. ANZ's wealth-management division, OnePath, launched a wealth-insurance product named MoneyForLife in 2009 but stopped taking new money earlier this year.

The latest entrant into the wealth-insurance market is MLC, which launched MasterKey Investment Protection in September.

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For an annual fee, wealth insurers guarantee the capital value of an investment portfolio against loss. Alternatively, they will guarantee to pay a fixed level of income for a number of years (or lifetime), even if the value of the initial investment supporting that income falls.

AMP's director of platforms, Steve Burgess, says North has three options: protected growth, protected retirement and protected investment. An investor taking out a protected growth policy can choose a term of 10 years or 20 years. The value of the capital is guaranteed for the term and a ratchet applies, which means that if the capital increases in value, the guarantee will apply to that increased value.

If the investor takes the money out early and the account value has fallen below the guarantee level, a formula is applied that provides some protected return.

A protected retirement policy provides a fixed level of income (an annual payment of 5 per cent of the original sum guaranteed) for life. A ratchet applies in this case as well.

A protected investment guarantee is for money invested outside superannuation. It provides guarantees for shorter terms and has no ratchet.

Burgess says the value of wealth insurance is that it allows investors to keep money invested in growth assets while protecting those assets against loss. They can reduce their exposure to investment risk while continuing to invest for growth.

He says the annual fee is between 1.8 per cent and 2.3 per cent of the funds invested. That is on top of North's administration fee of 0.6 per cent a year and investment management fees of between 0.45 per cent and 1 per cent.

The guarantee fee will be higher for portfolios with a lot of high-growth assets. That is because the cost of the hedging instruments AMP uses is related to the volatility of the assets being protected.

The general manager of MLC Retirement Solutions, Andrew Barnett, says MLC will charge between 0.45 per cent and 2 per cent for the guarantee.

Barnett says investors can reduce the cost of the guarantee fee by protecting only part of their portfolio. ''If you protect your growth assets and leave the cash and fixed income unprotected, you will keep the cost of protection down,'' he says.

MasterKey Investment Protection is similar to North; it offers a protected capital policy and a certainty of income policy. Terms for protected capital policies are 10 years or 20 years, and there is a ratchet. Certainty of income can be taken out for 10 years, 20 years or life. The guaranteed annual income payment over 10 years is 10 per cent of the invested capital and over 20 years or life it is 5 per cent.

Barnett says there are two important differences between a wealth-insurance policy and lifetime annuity, a guaranteed income stream that has enjoyed a revival in recent years. ''We do not change the structure of the investor's portfolio. If they want a high allocation to growth assets, they can maintain that,'' he says.

The other important factor is that investors have full liquidity. They can make withdrawals at any time.

Barnett says: ''We assess a retirement income product using four factors. Does it protect for longevity? Does it provide opportunity for the asset value to growth in the pension phase? Does it offer liquidity to allow the investor to deal with unforeseen circumstances? And does it provide certainty around the value of the capital?

''We think wealth insurance achieves a good balance across those four factors.''